China's economic growth eases to 10.3%

NEW YORK (CNNMoney.com) -- China's economic growth eased somewhat in the second quarter, suggesting that government efforts to slow expansion and prevent overheating are starting to be felt.

China's gross domestic product, the broadest measure of economic output, grew at an annual rate of 10.3% during the second quarter of 2010, according to figures from the National Statistics Bureau released Thursday. The pace slowed from the 11.9% growth posted in the first quarter.

Moderating growth was widely anticipated, as Chinese officials have been implementing measures to cool some sectors of the economy in a bid to achieve a so-called soft landing for the economy after years of blistering growth.

"We believe policy tightening has achieved its goals of containing property prices and inflation in (the first half of 2010)," Shen Jianguang, Greater China chief economist at Mizuho Securities Asia, wrote in a note to clients.

But while China's growth is decelerating and should continue to do so through the rest of the year, food prices and wages are still rising and could still pose potential risk, Shen wrote.

A slight slowdown may be welcomed by economists concerned about China's economy overheating and being at risk of rampant inflation. But markets expressed disappointment. The Shanghai Composite fell nearly 1.9% after the growth figures were released.

"Even an 8% GDP growth rate is a very healthy for China right now," said Todd Lee, managing director of the Greater China division at research firm IHS Global Insight.

Still, investors are concerned about the impact of a slowdown in China, whose booming economy has been a driver of global growth. In 2009, as the U.S. and other global economies were in a deep recession, China was able to maintain strong economic growth -- at a pace of 8.7%.

After years of double-digit expansion, officials in China have taken efforts to dampen growth in the country, where exports have been surging and the real estate sector has been rapidly expanding, sparking fears of a Chinese housing bubble.

"The Chinese government has been jaw boning banks to crack down on mortgages and pullback on lending to help moderate prices," said Jay Bryson, Wells Fargo global economist.

"You don't want to have China develop asset bubbles and go through boom and bust cycles. It's better to have them clamp down now and have a soft landing instead of slamming on the brakes later," Bryson said.

The measures would appear to be working: Chinese property prices fell for the first time in 16 months, according to a government report released earlier this week. The nationwide index of property prices across 70 medium-sized Chinese cities decreased 0.1% in June.

The People's Bank of China, the country's central bank, also announced last month it would allow its currency to appreciate against the dollar. A rise in the yuan's value could further slow growth in China's exports by making its goods more expensive overseas.

A sharp drop in the value of the euro compared to the dollar during the quarter already raised the price of Chinese exports to Europe, the leading market for its products. The yuan had been pegged to the greenback since 2008.

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